If you’re a Japanese or foreign national, you have likely heard about the Japanese Exit Tax. But what is this tax and what does it mean for you? Is there a way to avoid it? If you’re one of the wealthy elites of the world, then you likely can’t escape this tax. Soon, there will also be a new tourist or travel exit tax that affects everyone who leaves the Land of the Rising Sun by air or sea. SME Japan has put together this guide to help you understand Japan’s Exit Tax, how to navigate it, and how to keep your assets safe.
Getting to grips with Japan’s exit law
What is Japan’s Exit Tax?
Japan’s Exit Tax is a capital gains tax passed in March 2015 and enacted in July 2015 that targets high net worth individuals holding financial assets over 100 Million JPY. The new provision only applies to high-rollers who plan on moving away from Japan and is intended to prevent the wealthy from moving to other countries that have low tax rates or allow assets to be sold with a minimal financial penalty. Taxable assets include:
- Securities (as defined in income tax law)
- National and municipal bonds
- Corporate bonds
- Tokumei-Kumiai contracts
- Unsettles credit transactions and derivative transactions
- Gifts and inheritances
Untaxable assets include:
- Real estate and other fixed assets
- Cash holdings
- Insurance policies
How Does It Work?
As of July 2015, the exit tax went into effect for Japanese nationals; however, the tax doesn’t proceed for foreign nationals until July 1, 2020. The exit tax applies to any person who falls under the following conditions:
- holds a Japanese citizenship
- no longer has a main residence (jusho) or a temporary residence (kyosho) in Japan
- has financial assets over 100 million JPY ($850,000 USD)
- has stayed in Japan for more than 5 out of the last 10 years before relocation
- Is a resident holding non-employment visas (i.e. permanent residents and spouses of Japanese nationals)
If the above conditions apply to you, then when leaving Japan, you will be subject to taxation on any gains, realized or unrealized, on covered assets at a rate of 15.315% (including restoration surtax). The assets would be settled at what a fair market value determined by the Tax Agency.
What To Do If This Affects You?
If you plan on permanently leaving Japan and find that the exit tax applies to you, then you should hire a Tax Administrator prior to departure. This act not only affects the timing of when you will pay the tax but also your legal status as to whether or not you actually paid the tax.
If you appoint a Tax Administrator before leaving the country, your financial assets will be taxed on capital gains the day you leave. If you don’t, the tax will need to be paid 4 months in advance of your departure date.
Leaving the country without appointing a Tax Administrator or paying the tax ahead of time will result in you becoming tax delinquent and subject to any penalties or interest on taxes owed.
How To Avoid Exit Tax?
There are a few options if you want to defer, adjust, or completely avoid the exit tax:
- Secure your assets in insurance contracts or bonds.
- Work under a short-term visa or remain a resident for under 5 years.
- Defer the tax for 5-10 years (requires collateral and Tax Administrator, no sale of assets, and accrues interest).
- Move from the country temporarily and then return. Returning within 5 years without selling covered assets exempts you from the exit tax and makes collateral refundable.
- If you’re a foreign national, move before July 1, 2020.
- Make Japan your permanent home.
How Will This Affect Tourists?
In July 2017, the Japanese Tourism Agency introduced a proposal of an exit tax on tourists to raise revenues for tourism promotion overseas. This is the first new tax law for the country since the land value levy in 1992 and is a step forward in achieving Prime Minister Shinzo Abe’s administration’s goal of making Japan a “tourism-oriented country.”
The tourist exit tax is set to begin in April 2019 and imposes a 1,000 JPY (approx. $9.12 USD) on anyone leaving by plane or ship. This won’t impact your financial assets, but if you plan on leaving the country for relocation, be ready to get taxed on your way out the door – twice.
Summary
The Land of the Rising Sun is an inspiring place to visit, do business, or relocate to. However, taking the plunge by air or sea means being paying the price to go back home. If you’re a high-roller living in Japan and looking for a way out to avoid heavy taxation, be prepared to hire a Tax Administrator to help you with your transition or secure your major liquid assets in insurance contracts – that or plan to set up a permanent residence in Japan.
Japan's Exit Tax FAQ
What is the Japanese Exit Tax?
Japan’s Exit Tax is a capital gains tax enacted in July 2015 that targets high net worth individuals holding financial assets over 100 Million JPY who plan on moving away from Japan. The purpose of the tax is to prevent the wealthy from moving to other countries to avoid Japanese taxes.
Who Is Subject To This Tax?
The exit tax applies to any person who:
- no longer has jusho (main residence) or kyosho (temporary residence) in Japan
- has financial assets over 100 million JPY ($850,000 USD)
- has stayed in Japan for more than 5 out of the last 10 years before relocation
- is a Japanese national
- is a resident holding non-employment visas (i.e. permanent residents and spouses of Japanese nationals)
What Assets Are Subject To This Tax?
The assets subject to this tax are select liquid assets. Fixed assets, like real estate, are not included in the tax. Neither are corporate and government bonds or cash holdings. Taxable assets include:
- Securities (as defined in income tax law)
- National and municipal bonds
- Corporate bonds
- Tokumei-kumiai contracts
- Unsettled credit transactions and derivative transactions
- Gifts and inheritances
How Do I Pay The Tax?
The most efficient way is to appoint a Tax Administrator. If you appoint a Tax Administrator before leaving the country, your financial assets will be taxed the day you leave. If you don’t, the tax will need to be paid 4 months in advance of your departure date. If you leave the country without appointing a Tax Administrator or paying your tax ahead of departure, you can be subject to tax penalties and fees.
How Can I Avoid The Tax?
You can’t really avoid the tax without maintaining a permanent residence in Japan. However, there are a few loop hole opportunities:
- Secure your assets in insurance contracts or bonds.
- Work under a short-term visa or remain a resident for under 5 years.
- Defer the tax for 5-10 years (requires collateral and Tax Administrator, no sale of assets, and accrues interest).
- Move from the country temporarily and then return. Returning within 5 years without selling covered assets exempts you from the exit tax and makes collateral refundable.
- If you’re a foreign national, move before July 1, 2020.
Is The Exit Tax For Tourists The Same As The Capital Gains exit Tax?
The concept is generally the same, but the execution and purpose are different. The tourist or travel exit tax is a small tax that is collected from anyone leaving the country by plane or ship. This applies to every person in every tax bracket. It doesn’t tax personal assets, and only applies as an additional tax or fee. The purpose is to raise money to promote Japan as a tourist destination overseas.
Getting to grips with Japan’s exit law